Question

Example 2 Company issued common shares with par value of $150.000 and market value of $450,000 in exchange for 70 Xchange for 70% ownership of Tolliver Corporation on January 1, 2014. Tolliver reported the following balances on that date. Book value Fair value Cash $90.000 $90,000 Accounts receivable 130,000 130.000 Inventory (FIFO) 120,000 150.000 Land 50.000 65,000 Building and equipment 500,000 320,000 Less: Accumulated depreciation (240,000) Patent 25.000 Total Assets S650.000 $780,000 Accounts payable $30,000 $30,000 Bonds payable, 8% due Jan. 1. 2018 200,000 216,849 Common stock 150.000 APIC 20.000 Retained earnings 250,000 Total liabilities and SHE $650.000 The economic life of the patents held by Tolliver is 10 years. The building and equipment are expected to last 12 more years on average. Tolliver paid dividends of $9,000 during 2014 and reported net income of $80,000 for the year. The bond was issued at par. Required: a. Show the allocation of the difference between the implied value and book value on January 1. 2014. Also show the worksheet entry for the allocation. Implied value Book value of equity

Answer 1

Note :	Following calculations are made on the basis of best assumptions can be made as per the information provided in given problems. The answer might be different as answers provided by other expert on the basis of different assumptions taken by other expert.
Ans-(a)	Allocation of the difference between the implied value and book value on 1st Jan 2014		Amount in"$"
	Particulars	Book value	Fair value
	Cash	90000	90000
	Account receivables	130000	130000
	Land	120000	150000
	Building and equipment	500000	320000
	Less: Accumulated Depreciation	-240000	0
	Patent	0	25000
	Less: Account payable	-30000	-30000
	Less : 8% Bond payable	-200000	-216849
	Book value of Equity	370000
	Implies value of stock		468151
	Differences in Allocation			98151
Ans-(b)	Planning charts for "C" Entries
	Particulars	Total	Equity investments(70%)	Non controlling interest(30%)
	Net income	80000	56000	24000
	Retain Earnings	250000	175000	75000
	Less Dividend Received	-9000	-6300	-2700
	Balance of Earnings	321000	224700	96300
	Share subscribed	150000	105000	45000
	Total	471000	329700	141300
	Less: Cost of investment		-450000
	Excess amount paid		-120300
	Planning charts for "E" Entries
S. No.	Particulars		Amount
1	Value patent	25000
	Economic Life	10 Years
	Amortization Per Year		2500
2	Building and Equipment	500000
	Life Remaining	12 Years
	Depreciation for Nest Period		41667
	Total Depreciation and Amortization Per year		44167
	Worksheet eliminating entries in general Journal Entries
Date	Account title and explanation	P/R	Debit	Credit
1	Goodwill account		120300
	To investment in Tolliver Corporations			120300
	(Being excess payment made recorded as goodwill)
2	Amortization of Patent		2500
	To patent			2500
	(being patent amortized)
	Profit and loss statement		2500
	To Amortization of patent			2500
	(being amount transferred)
3	Depreciation on Building and Equipment		44167
	To Building and Equipment			44167
	(Being Depreciation charged on building and equipment)
	Profit and loss statement		44167
	To Depreciation on Building and Equipment			44167
	(being amount transferred)
4	Retain Earnings		6300
	To Profit and loss statements			6300
	(being dividend received eliminated)